FDIC Law, Regulations, Related Acts

4000 - Advisory Opinions

Clarification Regarding Section 19 of the FDI Act as Amended by
FIRREA

FDIC-89-50

December 15, 1989

John L. Douglas, General Counsel

I am writing in response to your inquiry on behalf of your client
*** , its subsidiaries and affiliates (collectively, "***"), for
clarification with respect to the scope of section 19 of the Federal
Deposit Insurance Act (the "FDIA"), as amended by the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA"). In general, section 19 imposes certain penalties upon
any "person" who has been convicted of certain crimes if such
person participates in the conduct of the affairs of an insured
depository institution without the consent of the Federal Deposit
Insurance Corporation (the "FDIC").

On September 11, 1989, *** entered guilty pleas to six felony counts
of mail and securities fraud pursuant to a plea agreement previously
entered into with the Office of the United States Attorney for the
Southern District of New York. Section 19 does not define the types of
activities that would be regarded as participation in the conduct of
the affairs of an institution and, in your view, is somewhat ambiguous
with respect to the kinds of offenses that would trigger its
application. In any event, it is your belief that section 19 should not
be construed to apply to a business entity such as *** . It is your
view that as a matter of statutory construction, section 19 is intended
to apply to individuals and not to business entities. You request that
I confirm this construction of section 19.

Our staff is working on the development of a Policy Statement or
regulation interpreting and analyzing section 19 that will, among other
things, seek to address whether, and/or to what extent, section 19
should be applied to corporations and other business entities. The
Policy Statement will also seek to address generally what constitutes
participation in the conduct of the affairs of a financial institution.

Since there is no express legislative history in FIRREA concerning
the application of the amended section 19 to corporate entities, until
such a policy statement is adopted and issued we will generally
interpret and apply section 19 consistent with the language contained
in section 904(a) of FIRREA on the applicability of amended section
8(e) to corporate entities. That section, which will be codified at 12
U.S.C. § 1818(e)(7)(F), states:

"(F) APPLICABILITY.--This paragraph shall only apply to a
person who is an individual, unless the Board specifically finds that
it should apply to a corporation, firm, or other business
enterprise."

Accordingly, we advise you that unless a regulation or a Policy
Statement is adopted which states that section 19 will be applied to
corporate entities, or unless the Board of Directors specifically
determines otherwise with respect to *** , we will not subject *** to
the prohibitions of section 19.1

Once a final policy statement or regulation is developed, it may be
necessary for *** , at some point, to file an application or submit
additional information upon which we can make a definitive
determination of the appropriateness of applying section 19 to facts
and circumstances such as those faced by *** .

Among the issues that may need to be addressed are: (a) what
individuals within the corporation were responsible for the conduct in
question; (b) whether those individuals are still with the corporation;
(c) what individuals or persons had oversight responsibility; (d) what
activities related to banking the corporation hopes to engage in, now
or in the future; and (e) the names of the institutions that may be
affected by the activity.

We trust this is responsive to your inquiry. If you desire
additional information, or want to discuss this further, please contact
Douglas H. Jones, Deputy General Counsel or Arthur L. Beamon, Associate
General Counsel.

1We suggest that any other corporate entity that may be subject
to section 19 requirements contact the appropriate FDIC Regional Office
and provide any information that may be required for a determination as
to whether section 19 should be applied under the specific
circumstances. Go back to Text